International Adjustment and the Japanese Firm

Abstract

lNTRooucnoN internationalisation process has been the shifting offshore of manufacturing activity.According to a survey by the Ministry of International Trade and Industry, the ratio of overseas to domestic manufacturing output by Japanese finns increased from 1.6 per cent in 1979 to4.9 per cent in 1988 and an estimated 5.8 per cent in 1989 (Ts0shO Sangy6sh6 Sangy6 Seisakukyoku Kokusai Kigy6ka, 1990: t 4-15).The industries exhibiting the highest ratios of overseas production are the assemblytype industries, notably precision equipment (13.9 per cent in 1988), electrical equipment (10.6 per cent) and transport equipment (including motor vehicles) (9.4 per cent).This process of internationalisation of Japanese business and the further deregulation of the Japanese economy raise a number of interesting questions.At. a high level of generality, these include: how does the ~atur~ of Japan,:j c~rpor~te org~sati?ncondition ?rcon~train the ~ay m which Japanese fmns mtemationahse or globahse their prcxlucllon and financial activities?what will be the impact of increased overseas prcxluction and other activities on existing domestic corporate organisation; in the case of assembly-type industries, for example, on domestic subcontracting systems?what kind of procurement systems will Japanese finns implement overseas?what kinds of opportunities does this adjustment process present to foreign finns to increase their level of dealings with Japanese finns in Japan or elsewhere, and how should foreign firms capitalise on these opportunities?This last question suggests another perspective on the issue of Japanese corporate organisation and international adjustment.Whereas traditional trade theory had little to say about the role of finns or corporate structure in the process of international trade and cross-border investment, recent developments in the theory of economic organisation suggest a richer fram~work for analysing this set of issues.The basic question that is studied in this emerging literature in economics -what detennines how transactions are organised within and between U1e entities we label 'finns' and 'markets'?-has a natural extension to the arena of international trade and business: namely why do transaction.sinvolving flows of goods, services, and factors of production between countries take on the fonn that they do, or in a normative context how should such transactions be structured?This kind of perspective is adopted in many of the studies in this book.It is more than just a valuable conceptual framework for organising our thoughts about the sets of issues discussed above.It also provides a useful perspective on the kinds of problems and concerns that foreign firms are liable to have in their dealings wiU1 Japan.In order to 'do business' with Japan or to penetrate the Japanese import market, it is necessary to understand the forces that are at work giving shape to the kinds of corporate organisations and institutional mechanisms at work there.This is a theme that runs Uuough much of this book.The first essay (Chapter 2), by Paul Sheard and Christopher Findlay, takes much of this discussion further by providing a more detailed analysis of the issues introduced above and by sketching a broad conceptual framework for interpreting the chapters that follow.They provide a framework for considering the link between Japanese corporate organisation and international trade and adjustment that draws on recent developments in the theory of economic organisation.An important contribution is to suggest that.economicsand economists have more to say about this set of issues than is suggested by just the macroeconomic analysis of, for example, bilateral current account imbalances or the trade-theoretic analysis of comparative advantage and trade specialisation.Drawing on the new transactions cost approach, they argue that the issues that are the focus of concern in this literature are likely to be even more important in an international setting given the natural discontinuity that exists in transaction costs at international borders in tenns of language, culture, legal systems and contract enforceability, business conventions, political systems, and so on... Sheard and Findlay address three main issues ,' which provide the themes for the following chapters.First, they examine the role that corporate organisation plays in influencing how shocks are transmitted in the economy and how structural adjustment talces place.A second issue they examine is the 'structural impediments' view of Japanese corporate organisation.They argue that much of this view is based on misconceptions both of a factual and conceptual kind.Third, they include a more speculative discussion of how Japanese corporate organisation might be changing in response to changes in the domestic and international environment, including feedback and spillover effects arising from the increasing internationalisation of Japanese business.An issue that frequently arises in discussion of Japanese corporate organisation is whether the Japanese firm operates under the same set of behavioural principles as other W_ estem firms, particular_P.' with respect to the respective roles of management, employees and1ijareholders in the running of the firm and in the sharing of the firm's profits and risks.Masahiko Aoki's paper (Chapter 3) makes an important theoretical contribution to the resolution of this issue.2Aoki shows that certain supposedly unique features of Japanese firm behaviour such as employee loyalty to the finn and tl1e high-growth orientation of finns can be explained in economic tenns using a bargaining game approach.Aoki can be read as making the following important point: the fact that the Japanese firm does not appear to be explained well by the standard neoclassical theory of the firm is not a case for arguing, as some authors explicitly or implicitly do, that the Japanese finn is not amenable to economic analysis but rather suggests limitations in the strict neoclassical approach and that a richer economic analysis, in which the neoclassical theory falls out as a rather special case, is required.In this vein, Aoki is ratl1er critical of tl1e 'employee-sovereignty', or • J apanologist', ap-

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 24 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.